Three Rivers District Council and Others v. Governor and Company of The Bank of England

Factual and Procedural Background

The Plaintiffs—more than 6,000 depositors of a foreign-incorporated bank (“B.C.C.I.”)—seek damages of approximately £550 million after the collapse of that institution on 5 July 1991. They allege that officials within the Defendant, the United Kingdom’s former banking supervisor, abused their regulatory powers:

• by issuing a licence to B.C.C.I. in 1980 despite knowing that statutory requirements were not met;
• by ignoring mounting evidence of fraud within the bank throughout the 1980s; and
• by failing to revoke the licence or close the bank when depositor interests were at risk.

Two causes of action were pleaded: (1) the common-law tort of misfeasance in public office and (2) damages for alleged breaches of the 1977 First Banking Co-ordination Directive.

At first instance Judge [Last Name] struck out both claims after trying preliminary issues on the assumed truth of the pleaded facts. A majority of the Court of Appeal affirmed. The House of Lords granted leave confined to “legal issues” only, namely the ingredients of misfeasance and whether the Directive conferred compensatory rights on depositors.

Legal Issues Presented

1. Does the Defendant banking supervisor owe depositors a direct right of compensation under the tort of misfeasance in public office on the assumed facts?
2. Properly construed, does the 1977 First Banking Co-ordination Directive confer individual rights on depositors enforceable in domestic courts?
3. What mental element (intent, knowledge or recklessness) and what standard of causation/remoteness govern liability for misfeasance?
4. Can potential, as opposed to existing, depositors maintain a misfeasance claim?

Arguments of the Parties

Plaintiffs’ Arguments

• The Defendant knowingly licensed and thereafter ignored systemic fraud at B.C.C.I., thereby acting in bad faith and abusing statutory powers.
• Reckless indifference to illegality and to the likelihood of depositor loss suffices to found the tort; proof of “targeted malice” is unnecessary.
• The 1977 Directive was intended to protect “savers”; its provisions on authorisation, supervision and licence withdrawal create directly effective rights to compensation when breached.

Defendant’s Arguments

• The pleaded facts, even if assumed true, do not satisfy the stringent mental-element and proximity requirements of misfeasance.
• Recklessness must be subjective; objective foreseeability of loss is insufficient.
• The Directive aims at market harmonisation, not individual depositor protection; any duties run only to the Community or to credit institutions, not to depositors.

Table of Precedents Cited

Court’s Reasoning and Analysis

Misfeasance in Public Office

• The tort requires (a) a public officer; (b) exercise of powers; (c) subjective bad faith—either targeted malice (intent to injure) or knowledge/reckless indifference both to illegality and to the probability of harm; (d) causation; and (e) damage not too remote.
• Subjective recklessness—as adopted in Northern Territory v. Mengel—is sufficient; objective Caldwell-type recklessness is rejected.
• No additional “proximity” filter is needed; foreseeability of loss plus the mental element keeps the tort within proper bounds.
• Recovery is limited to losses that the officer actually foresaw as a probable consequence (not merely foreseeable in law).
• Whether the Plaintiffs’ pleaded facts satisfy these ingredients cannot be determined without a further, fact-focused hearing; that part of the appeal is adjourned.

Community Law Claim

• Applying Becker, Francovich and Dillenkoffer, a Directive grants private rights only where provisions are “unconditional and sufficiently precise.”
• Articles 3, 6, 7 and 8 of the 1977 Directive govern authorisation structures and inter-authority co-operation; they do not impose specific, actionable duties owed to individual depositors.
• The Directive’s purpose is market harmonisation, constrained (but not driven) by depositor protection; it neither mandates continuous supervision nor requires licence withdrawal absent national implementation measures.
• Accordingly, the matter is acte clair; no reference to the Court of Justice is necessary.

Holding and Implications

Community-Law Claim: DISMISSED.

The Directive of 1977 does not confer an actionable right of compensation on individual depositors.

Misfeasance Claim: ADJOURNED.

The House has authoritatively restated the elements of the tort. Whether the extant pleadings can satisfy those requirements is remitted for further argument and possible re-pleading. The decision clarifies English law by:

• Confirming subjective recklessness as the mental threshold for misfeasance;
• Rejecting mere objective foreseeability of harm;
• Declining to super-impose a “proximity” test beyond the mental element and damage rules.

It sets no new precedent on Community law but underscores that harmonisation directives do not automatically create private rights.